DAX 40 & DOW JONES: weekly analysis 20th – 24th March
Market movers
A tough week for the stock markets ends in negative territories. Fears of a banking crisis in the United States had spillovers in Europe, worsening the already precarious situation of Credit Suisse.
Furthermore, the ECB raised the interest rates by 50pbs.
This week the focus of traders will be on the Fed interest rate decision scheduled for the 22nd of March.
The consensus expects that in light of the actual turmoil in the domestic banking sector, the US central bank will implement a rate hike by just 25pbs even as the majority of investors are now considering the halt of rate hikes a genuine case. Furthermore, it will be interesting to listen to a possible speech from the Fed’s Chairman that could outline the future approach of the central bank.
Despite these circumstances, there will also be other events to monitor during the week. On Tuesday 21st will be released the German ZEW index which will affect the whole Euro Area. Thursday the 23rd will be the central banks day with the SNB, which could issue comments on the Credit Suisse case, as well as Norges Bank and the BoE which will all decide on monetary policy.
Finally, next Friday the adjustments on the inflation rate in Japan for February and the preliminary estimates of the PMI indices in the Eurozone, as well as those of the United Kingdom and the United States, will be important to monitor.
Weekly analysis and market scenarios for DAX and Dow Jones
Last week we ended with the firm conviction of many insiders and traders that the markets would collapse following the demise of the Silicon Valley Bank. At the closing bells of Friday, 17 March, we can firmly state that the American indexes emerge unscratched from a week that many had predicted to be a tragic bloodbath. Therefore, there is an increased chance of forming a new lower low for Wall Street. However, during the last session, we witnessed signs of weakness that we could not take unconcernedly.
Despite all news, the critical levels will determine the next trend to be developed. Rollovers should not be considered because they are simple movements of technical adjustments.
The finger is pointed to inflationary pressures on interest rates and their effects on the economic cycle. Will they lead to a deep recession or a soft landing? We believe in the second hypothesis since the predictive and coincident data already point out this direction.
Rising interest rates won’t directly and inevitably lead to a recession. As long as these hikes are balanced with economic growth, there should be no danger.
The likely lows in October will have a high probability of remaining so for many years. They could represent the lows of the entire decade. Despite some short-term overbought, the markets are unstoppable and will be so for a long time. Here is why.
We have highlighted several times that stock prices tend to move at least 6/9 months before the economic cycle. For this reason, during the final part of 2022, the markets would have posted a significant bottom between June and October and then taken off again for the long term. The prices marked during the year had discounted the most unfavourable geopolitical and geo-economic conditions.
During 2023 we expect the following pattern to emerge: the low should be posted in January or during Q1, and the high during Q4. Average market returns up to 20-25%.
As always, we will confirm the annual forecast from time to time.
Last week, on Monday, the S&P500 index experienced new weekly lows in the 3808-3798 area, then managed to recover and lightly touch the 3990-4012 area on Friday, closing after the end of the rollovers at the 3947 mark.
New supports in the 3930-3905-3899 area. 3890-3879 is the critical zone because, in this specific area, buyers managed to concentrate. Weekly support in 3864-3857 areas. Another intermediate zone is in the 3822-3814 area.
Critical support in the 3808-3798 zone, below which prices could start a new downward spiral.
Support around the areas 3669, 3680-3689-3701, and 3711-3726-3733 are confirmed.
3762 and 3711 are the monthly levels that support the current uptrend, so beware of any breakout of these levels: we could witness a new trend inversion.
The psychological support of 3600 remains crucial. Support around 3644-3651 points has halted the fall and is now the monthly support after this strong uptrend. Prices should not return around that area again to avoid new heavy bearish pressure. Below is the 3607 level. Then again, the 3557-3547, 3538-3524, and 3514-3507 are support levels. The 3485 support is now the annual, critical and historical level for the S&P500 index. We will test whether this last level could stop, at least in the medium term, the bearish direction of the markets. Should we go beyond it, 3200-3300 will be the target, sought after by funds, investors and traders halfway around the world.
New resistances are placed in the 3957, 3974-3990, and 4012 areas. Managing to get back to this latter level could lead to a reversal of the index, and we came up very close this week. Intermediate resistances in the 4025, 4049, and 4075 areas. I confirmed the 4084 and 4097 levels. These levels can be easily crossed if there is enough pressure from prices.
If prices this week will return above 4144, the weekly resistance, the index will be able to continue looking for bullish targets with the intent of a monthly reversal; in other words, above 4182-4202, the gap filled the 22 August 2022 in the 4221- 230 and 4258 area.
In addition to resistance 4144, without whose recovery the index will not turn bullish every week, prices formed significant walls in the 4141-4135-4125 and 4113-4109-4100 areas, ideal levels to look for new short entries.
We can find confirmed resistances in the 4258 and 4393-308 areas. Other resistances are around 4313-4339, 4396, 4415-4451, and 4480.
The 4506 and 4554 are the resistance levels to be broken to see the downtrend that began in April 2020 reversed. The 4580-4590 is the area to overcome to break down the monthly resistance in the 4613 area.
A weekly close above 4613 may guarantee a reversal of the annual trend if confirmed monthly; the following targets remain 4717 and 4780.
How to move? If Monday or Tuesday, Wall Street manages to pierce the lows of March 15th to the downward, there will be room for a strong sell-off until the 6th of April. It will be vital to correctly check the indicated supports and resistances to follow the price trend.
DE40 – The German index has constantly been suffering downward pressure after the events of Credit Suisse and the aggressive stance of the ECB. Prices have abandoned the 15200 mark to approach and attack the weekly support in the 14967 area throughout the week. The price managed to close on the proximity of the critical support in the 14814-712 area.
This support becomes the weekly level for new upward movements or heavy drawdowns.
Intermediate supports 14138-184, 14342, 14414-538, and 14645.
New critical zone in the 13814-781 area. The loss of the volume zone 14069-13974 opens the way to the monthly support in the 13621 area.
Monthly support in the 13621 area. The Dax left a huge volumetric gap after the FED’s inflation figures, easily penetrated at the loss of 13975.
Solid supports in the 13692-608, 13550-516, and 13457-410 areas. Confirmed support is around 13314-333, 13331-410, and 13438-467.
Volumetric supports are confirmed in the 12865, 12833-12909, 12978-13038, 13113-178, 13222-280, and 13307-357 areas.
Support in the 12808-766 area is confirmed. From 12628 to 12766, there are a series of intermediate supports, helpful for looking for long pullback entries. 12566 becomes monthly support.
Other key supports are 12407-517 for volume concentration and 12353-275, the first bullish turn zone. Confirmed supports in the 12223 and 12136 areas.
Confirmed also support in the 19920-15006 area. This is 11875-11950-12024, which halted the price fall after the US CPI data on Oct 13th. Losing it would mean new bearish pressures and a touch of the weekly support in the 11766 area; below it, extensions to 11650 and 11542. The 11095 mark could be a target in case of a massive sell-off. These levels can be seen as annual reversal points.
A new resistance zone in the 14920-15006 area. This is the first zone to be recovered for new bullish extensions. Following resistances in 15083-124, 15170-216, and 15259-291 areas. The recovery of 15448 could lead to a weekly reversal of the ongoing bearish trend. The resistance 15586-580-659 is confirmed, which we added and modified to include last week’s volume zones – We confirmed the weekly resistance 15665.
An intermediate resistance is around 15810, with a new bullish strength only above 15944. Finally, a break of the resistance area around 16079-16136 would offer a stretch toward the critical resistance 16230, from which to target the 16300-16500 zone.
If by the following Friday, prices stay above 15291, we will see a possibility of a bullish continuation every month; below 14927, on the other hand, the trend may push forcefully downwards.
US30 – After attempting to break the resistance in the 32045-32247 area without success, the Dow Jones index touched the key support at 31199-497 lightly, bouncing at the weekly closure levels.
Confirmed supports placed in two well-bought areas: 31197-497 and 31536-764. The 32000 area was the psychological support and has been overcome. Critical is the 31861 mark, which just reached last week.
31036-31125 is the new weekly support. Confirmed support around 30953-815, 30715-614, 30559-381, 30253-136 e 29696-29906.
The 29485 mark remains a critical level. In addition to the 29619-529 and 29338-29264, the support zones 29159-28876 and 28800-28685 are well confirmed. These are all excellent supports to look for extended opportunities. Should they all be pierced to the downside, prices could move toward 28319, 28051, 27765, and 27019 in extension.
Confirmed resistances 32045-32247 and 32272-441 areas. These are the first areas that need to be recovered from giving the impulse for a minimum of bullish easing. Subsequent resistance in 32614-755, 32849-33021 areas. Critical is the 33061-33226 mark, which will be our weekly resistance. 33299-33380, last resistance established.
Other resistances in 33504-633, 33727 and 33777-852 areas. We confirmed 33890, 33981-34033 and 34203-34330. A key area is 34143, which will be our weekly resistance. Established the resistances in areas 34498, 34607-706, and 34801-34950, which will be our target for the month.
Monthly positioning above 35599-963 could offer a new bullish direction; 35157 and 35614 areas are significant because they may lead to either direction extensions. Observing this area is extremely important.
A move through 36529 and holding that level would allow seeing area 37000 if prices forcefully break the last resistance placed at area 36786. Above 36236, we maintain the option of further bullish volumetric thrusts.
IMPORTANT NOTE: the anxiety of the traders is obvious and is reflected in the price of the quotations. Following the FED meeting, we will understand if the market is ready to go upward strongly or to continue the downward movement with further numerous pullbacks.
Also this week, it is wise to note Monday’s openings and Friday’s closings for confirmation or denial of the current trend. Avoid overtrading and watch for volatility imparted by HFTs. Mark any gaps that may also appear during the week, with particular attention to those on Monday.
Happy trading!
